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How tax-related housing proposals from the 2022 federal budget will impact you


Even with the recent price declines, real estate prices in Canada have escalated significantly over the past several years, steadily rising at a rate that was higher than wage increases.

While affordable housing is a complex matter with no easy solution, new tax initiatives the federal government proposed in the 2022 budget could offer some relief—and have many Canadians curious about the impact.

In this article we discuss five income tax proposals related to housing and what they mean to taxpayers. With the exception of the increase to the Home Accessibility Tax Credit (HATC), these proposals have been included in draft legislation released on November 3, 2022 but have not yet been passed into law.

New Tax-Free First Home Savings Account (FHSA)

The boldest of these initiatives is the introduction of a new registered account, the Tax-Free First Home Savings Account (FHSA). First-time homeowners would be able to contribute a maximum of $40,000 over their lifetime to this account, at a maximum of $8,000 per year. This means that the maximum could be contributed over as little as five years, starting in 2023. The FHSAs are proposed to first be available in April 2023.

Like a Tax-Free Savings Account (TFSA), the funds contributed into an FHSA will be able to earn investment returns tax-free. Unlike the TFSA, direct contributions into an FHSA would be tax-deductible. This tax deduction would be allowed for contributions made in the calendar year or before the start of the calendar year as part of a carry-forward of allowable contributions.

Outline of the plan

Once a FHSA has been created, contribution room is created at $8,000 per year. If the maximum $8,000 is not made in a given year of the plan, the unused contribution room will be carried forward. For example, if an individual contributed $5,000 in 2023, they could contribute $11,000 in 2024—they would be able to add the $3,000 not contributed in 2023 to the $8,000 annual contribution amount in 2024. Any contributions made in excess of the amount available in a given year will be subject to a 1% a month tax on over-contributions.

Qualifying individuals must meet all the following conditions:

  • Be at least 18 years of age
  • Be a resident in Canada
  • Not have owned a home occupied as a principal residence (in Canada or elsewhere) in which they or their spouse or common-law partner lived at any time in the year the FHSA is opened or in the preceding four calendar years (except within 30 days of a qualifying withdrawal)

When a withdrawal is made from the FHSA to purchase a qualifying home, such a qualifying withdrawal will be tax-free. However, if a withdrawal (rather than a transfer) is made for any other purpose, it will be taxable, with limited exceptions to correct an over-contribution.

An FHSA will be a registered trust arrangement established by a financial institution in Canada – any financial institution that is able to issue Registered Retirement Savings Plans (RRSPs) and TFSAs would be able to issue FHSAs. This includes Canadian trust companies, life insurance, companies, banks, and credit unions. In this article, such financial institutions will be referred to as an issuer.

An individual can contribute to the plan and deduct the amount of the contribution in a subsequent year – the deduction does not have to be claimed in the year of contribution.

No contributions can be made to a FHSA after December 31 of the year following the year in which the earliest of the following events occurs:

  • 14 years from the date of the opening of the plan
  • The date the individual reaches age 70
  • The date of the first qualifying withdrawal.

Qualifying home purchases

A qualifying home would be a housing unit, such as a house, townhouse or condominium located in Canada. A share in a co-operative housing corporation that entitles the taxpayer to possess and have an equity interest in a housing unit located in Canada, would also qualify. However, a share that only provides a right to tenancy in the housing unit would not qualify.

Qualifying withdrawals

As well as the requirement that the holder of the FHSA not have owned a home in which they lived at any time in the four years preceding the withdrawal, or at any time during the part of the calendar year before the withdrawal is made (except within 30 days of the qualifying withdrawal), the timing of the withdrawal is important. The new homeowner can make a withdrawal within 30 days of acquiring the home. If the holder of the plan makes a withdrawal in advance of purchasing a home, the holder must have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal and intend to occupy the qualifying home as their principal place of residence within one year after buying or building it.

In order that a withdrawal be a qualifying withdrawal, it must be made by a qualifying individual to purchase a qualifying home. In addition, the holder must have made a written request in prescribed form to the plan issuer which contains the location of a qualifying home. The individual must intend to use the property as their principal place of residence, and have commenced to do so, or intend to do so no later than one year after its acquisition by the individual.

If a non-qualifying withdrawal is made, the financial institution that is the trustee of the plan will be required to collect and remit withholding tax on such withdrawals in a manner similar to the treatment of taxable RRSP withdrawals.

In addition, non-qualifying withdrawals would not re-instate either the annual contribution limit or the lifetime contribution limit.


Rules will be put in place to prohibit investments by the FHSA in entities with which the account holder does not deal at arm's length, as well as investments in certain assets such as land, shares of private corporations and general partnership units. Investments in publicly traded securities would be appropriate.

The Income Tax Act imposes taxes and penalties on other registered plans with respect to prohibited or

Death of plan holder

If an individual dies and holds FHSA on the date of death, the plan could become a FHSA of a surviving spouse or common-law partner if they are designated as a successor holder and otherwise a qualifying individual. Alternately, the assets in the deceased FHSA could be transferred to an RRSP or RRIF of the spouse or the common law partner by the end of the year following death. If neither of these options apply, the assets in the FHSA distributed to a beneficiary of the plan will be taxable to the beneficiary.

Transfers to registered plans

According to the draft legislation, the holder of a FHSA could transfer funds on a tax-free basis from an FHSA to an RRSP or RRIF under which the holder of the FHSA is an annuitant. However, it appears that this would need to happen before December 31 of the year following the year in which the earliest of reaching age 70, reaching 14 years from the date the FHSA was established, or making a qualifying withdrawal has occurred. Once the maximum life has been reached, the plan will be collapsed, and the fair market value of the assets in the plan will be taxable to the holder of the plan.

Such a transfer from a FHSA would not affect otherwise available RRSP contribution room, which could reduce the risk for anyone who wants to participate in an FHSA but is concerned about whether they should make an RRSP contribution or an FHSA contribution.

In other words, a taxpayer could first contribute to a FHSA, and if a home is not purchased with the funds, could transfer the money to an RRSP without any tax consequences. Any subsequent withdrawal from the RRSP or RRIF will be taxable in the same manner as other RRSP or RRIF withdrawals.

The proposals also provide for flexibility for moving funds between an RRSP and an FHSA. For example, if there are funds in an RRSP, they could be transferred to an FHSA over five years to provide $40,000 tax-free to purchase a home. If funds are transferred from an RRSP to a FHSA, the contribution room to the RRSP will not be restored.

There may be situations where a transfer from an RRSP to an FHSA to buy a home makes sense because the FHSA funds can be withdrawn tax-free with no need to repay the funds. However, while funds from an RRSP to create a Home Buyers’ Plan (HBP) can be withdrawn all at once, funds can only be transferred from an RRSP to a FHSA at a rate of $8,000 per year. Note that amounts transferred to a FHSA from an RRSP form part of the total annual limit of $8,000. For example, it would be possible to contribute $4,000 to a FHSA in a year, and transfer $4,000 from an RRSP in the same year, but no more than $4,000 could be transferred from the RRSP unless there was also FHSA carryforward room.

There is an exception to the general rule that would allow a tax-free transfer from an RRSP to a FHSA, and that is in the situation where the funds are being transferred from a spousal RRSP account. It is not possible to transfer from a spousal RRSP if there has been a contribution to the spousal RRSP in the taxation year or in either of the two preceding years.

Funds in an RRSP could also be used to buy a first home under the HBP. The HBP has been in existence for many years and allows a homebuyer to take a loan of up to $35,000 from their RRSP to use for purchasing a home. This loan must be repaid to the RRSP over 15 years or be taxed as a withdrawal over 15 years.

It appears that an individual will be able to use funds from an FHSA and funds from an RRSP (under the HBP) to buy a house. In a previous draft of the legislation, there was a restriction in using the HBP if the FHSA was used. However, this restriction is not in the current draft legislation.

Other comments

The draft legislation provides detailed rules on what happens to FHSA accounts on marriage breakdown, on death of an FHSA account holder and if the account holder becomes a non-resident. Additionally, the draft legislation provides that interest on amounts borrowed to contribute to an FHSA would not be deductible, and that if assets in an FHSA are pledged as collateral for a loan, the full value of such pledged assets would be taxed as income.

Each individual will need to assess how an FHSA could benefit them. This plan also represents an opportunity for a parent to help their adult child save for a first home. The parent would not be able to contribute funds directly to an FHSA set up by their child and achieve a tax deduction, but they could gift the funds to their child, who could then use it to contribute to an FHSA. The child would then get the tax deduction. In a similar way, an individual could gift funds to their spouse to contribute to a FHSA without having to worry about the attribution rules as a specific exception is provided in the draft legislation.

Multigenerational Home Renovation Tax Credit (MHRTC)

Many older adults would like to stay in their own home and live as independently as possible. For some families, a home may be renovated to create a “granny suite,” or an area within the home of adult children where an elderly parent can live. This is one type of situation where the proposed Multigenerational Home Renovation Tax Credit (MHRTC) could help.

The proposed MHRTC will be a refundable credit calculated as 15% of eligible expenses for a qualifying renovation to an upper limit of $50,000. Eligible expenses must be paid after December 31, 2022, for services performed or goods acquired after that date. A qualifying renovation means that a secondary unit is created to enable a qualifying individual (senior or adult with a disability) to reside with a qualifying relative. The secondary unit would need to be a self-contained unit with a private entrance, kitchen, bathroom facilities, and sleeping area. The secondary unit could be newly constructed or created from an existing living space that did not already meet the requirements to be a secondary unit. Certain expenditures would not qualify for the credit, such as expenditures for routine repair or maintenance, household appliances, home entertainment electronics, housekeeping, and financing costs incurred for the renovation. The qualifying home must be in Canada.

An individual age 65 or older or a younger adult who qualifies for the disability tax credit are considered qualifying individuals.

A qualifying relative could be an adult who is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew of the qualifying individual, as well as the spouse or common-law partner of a qualifying individual.

Provided the individual ordinarily resides, or intends to ordinarily reside, in the home within twelve months after the end of the renovation period, the qualifying relative, the qualifying individual, the spouse or common-law partner of the qualifying individual could claim the expenses. Where one or more eligible claimants make a claim, the total amount claimed cannot exceed $50,000.

Only one qualifying renovation would be allowed to be claimed in respect of a qualifying individual over their lifetime.

Special rules apply in cases where the qualifying expenditures are incurred by a trust under which an eligible individual is a beneficiary.

It is proposed that this credit would apply for the 2023 and subsequent taxation years, for work performed and paid for and/or goods acquired on or after January 1, 2023.

Home Buyers' Tax Credit (HBTC)

There is currently a non-refundable tax credit available to first-time home buyers of $5,000, which provides tax relief at 15% or $750. The proposed changes will double this credit to $10,000, which would provide up to $1,500 in tax relief. This proposal will apply on the purchase of a qualifying home made on or after January 1, 2022.

Home Accessibility Tax Credit (HATC)

The budget also proposed that another of the current housing tax credits be doubled. The Home Accessibility Tax Credit (HATC) provides a 15% non-refundable tax credit on eligible home renovation expenses.

Eligible expenses for this credit are incurred when the expenses are for the renovation or alteration of a home to allow an adult age 65 and over to have greater accessibility in the home or to have a reduced risk of harm within the home. An adult individual who is eligible to claim the disability tax credit or a supporting person of such an individual can also claim the credit for these types of renovations.

The budget proposal doubled the annual expense limit to $20,000, which would then provide up to $3,000 in tax relief. This legislation was passed into law earlier in 2022 and applies for expenditures incurred in 2022 or later taxation years.

Residential property flipping rule

The Canadian tax rules distinguish between a capital gain, which is currently only 50% taxable, and income gains, which are fully taxable. The principal residence exemption is a provision in the Canadian tax legislation that provides a tax-free gain on the sale of a residence that meets the definition of a principal residence.

The government is concerned that individuals who purchase real property, including rental property, with the intention of reselling within a short period of time (property flippers) are incorrectly reporting their gain on resale as a capital gain, or in some cases as a tax-free gain from the disposition of a principal residence, rather than as fully taxable business income.

To address this, the proposed changes will treat the disposition of real property located in Canada that is held for less than 365 consecutive days as business income, except in limited circumstances that would be beyond a taxpayer's control (such as death, marital breakdown, addition of family members, disability, change of place of work, and insolvency). The proposed rule deems the flipped property to be inventory and not capital property of the taxpayer. Where the new deeming rule applies, the disposition of the property would not be eligible for the 50% capital gains inclusion rate, the principal residence exemption would not be available, and any resulting non-capital loss would be denied.

It is proposed that this measure would take effect in respect of residential properties sold on or after January 1, 2023.

How BDO can help

Our BDO tax professionals can help you assess how these potential changes can benefit you or your family members.

The information in this publication is current as of November 21, 2022

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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